HHS issues rule on physician self-referral

Health and Human Services Secretary Donna E. Shalala today announced final regulations addressing self-referrals by physicians. The final regulations will protect beneficiaries and taxpayers from potentially abusive referral patterns, while making it easier for physicians and providers to comply with the law.

The self-referral law prohibits physicians from referring Medicare patients for certain healthcare services to entities with which the physicians or their immediate family members have a financial relationship. A financial relationship can be defined as either an ownership interest or a compensation arrangement, and can be direct or indirect. The law also contains a number of exceptions.

"We've taken a common-sense approach to the law to prevent potentially abusive referrals while recognizing many legitimate business practices and financial arrangements," Shalala said. "Physicians should be able to structure their business arrangements to comply with the law, while continuing to provide high-quality healthcare to beneficiaries."

Studies by the HHS Office of Inspector General and other governmental agencies have shown that referrals to entities with which physicians have a financial relationship encourage excessive use of those services. In certain cases, the practices are also considered unethical by the Chicago-based American Medical Association.

"We believe this statute is a powerful deterrent to fraud and abuse," said HHS Inspector General June Gibbs Brown. "The regulation will be another strong step in the department's efforts to reduce waste, fraud and abuse in the Medicare program." The physician referral law provides a variety of sanctions, including denial or refund of payment and civil monetary penalties.

Consistent with the proposed rule, the final rule prohibits physicians from making referrals for the targeted services to most entities that the physicians own in whole or in part. In contrast, the final rule generally permits physicians to refer to entities with which they have a compensation relationship, as long as the compensation paid to the physician is no more than would be paid to someone who provided the same services but was not in a position to generate business for the entity.

The final rule also clarifies some of the exceptions to the self-referral prohibition and offers clear guidance regarding how to structure financial arrangements to comply with the exceptions.

AMA response

Though the American Medical Association did not issue a statement regarding the new rules, an article in the association's newspaper, AMNews, described the rules as "better than expected" and said they are much easier for doctors to comply with than the regulations proposed in 1998.

To give physicians time to adjust existing business arrangements that would not previously have triggered the referral prohibition, the rule will be effective on Jan. 4, 2002. PR